What kinds of practices should employers focus on if they want to minimize this risk?
Jorgensen: There are several. One of them is the payment of day rates. For example, oilfield service companies often pay their engineers, pumpers, and drivers a “day rate,” which means the employee is paid a set amount per day without regard to the number of hours worked. While this is allowed under the Fair Labor Standards Act, the practice does not change an employee’s entitlement to overtime pay for all hours worked in excess of 40 in the workweek. So it’s critical that employers track and maintain records of the time day-rate employees work and pay overtime.
Bush: Another issue is misclassification of employees. The issue here is whether an employee is properly classified as an employee that is exempt from receiving overtime. Unless an employee is exempt, he or she is generally entitled to overtime pay for time worked over 40 hours in a workweek. Many cases involve claims that employees were misclassified as exempt and should have been paid overtime. For example, plaintiffs have sued oil and gas employers for allegedly misclassifying inspectors and investigators as exempt employees. Whether such employees are exempt properly often turns on their level of discretion and independent judgment. Employers should determine whether these employees are required to follow well-established techniques and procedures or [whether an employee] instead uses his or her own judgment to analyze problems and make recommendations or determinations. Employers need to look at specific job duties and not rely on position titles or broad job descriptions.
Aren’t there also disputes involving whether a worker is an independent contractor or an employee?
Jorgensen: Yes. It’s a common practice in the oil and gas industry to hire independent contractors. Because wage laws typically only apply to “employees,” a company has no obligation to pay overtime to independent contractors. But the problem arises when courts second-guess whether a worker is really an independent contractor. If the court decides the worker is in fact an employee, the employer could face liability for the unpaid overtime as well as back taxes and other penalties.
Is that the case even if the employer entered into an agreement that clearly spells out that the worker is an independent contractor?
Jorgensen: Yes, the agreement won’t be enough by itself. Courts will focus on the “economic realities” of the relationship, considering factors such as the degree to which the company may control how the work is performed; the individual’s opportunity for profit (or loss); the individual’s investment in equipment or materials required for his task; the degree of permanence of the working relationship; and whether the service rendered is integral to the company’s business.
What other issues should an oil and gas employer pay special attention to?
Bush: Employers need to make sure they are paying their nonexempt employees for all “time worked.” There are often disputes regarding whether a particular activity is “compensable time” that must be recorded and paid. For example, time spent engaging in certain work-related travel is a common issue. For example, if a field inspector has to travel to several sites and then is required to return to a central office, the time he or she spends traveling from site to site is likely compensable and must be recorded as time worked. If, with the travel time, the field inspector works more than 40 hours in a workweek, the employer should pay overtime.
Jorgensen: We also see disputes over time spent in training. The general rule is that training time, and time spent at safety meetings and similar activities, need not be counted as time worked if such training occurs outside of normal working hours, is voluntary, not job-related, and no other work is being performed concurrently with the training.
Bush: And employers are sometimes surprised that even time an employee spends “on call” may be “compensable time.” An employee who is required to remain on call on the employer’s premises, or so close to the premises that the employee cannot use the time effectively for his or her own purposes, may be considered “working” while on call. This depends upon the level of constraint on the employee’s activities during the on call period and whether the employee can effectively use the time for his or her own purposes. It is a fact-specific inquiry, but one that could be costly if an employer gets it wrong.
Any final words of advice?
Jorgensen: Given the rise in wage-and-hour lawsuits involving the oil and gas industry, employers in this industry would be wise to reassess their pay practices, particularly related to the issues we discussed earlier. By auditing these practices, employers could mitigate the effect of any wage litigation that they may face down the road. There are other strategies that employers can consider to help reduce the risk of loss to the business, such as implementing arbitration agreements with class action waivers for employees and possibly contractors.
Keywords: energy litigation, unpaid wages, day rate, misclassification of employees, independent contractor, on call, training
Basheer Ghorayeb is a partner with Jones Day in Dallas and Houston, Texas, and a co-editor of the Energy Litigation Committee newsletter.